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Author Topic: How do Chargebacks work?  (Read 2738 times)
Foxpup
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September 14, 2013, 03:23:21 AM
 #21

I mean you are saying some will claim a chargeback on product x  even though it will show they received the item?
It won't show that the cardholder received the item, and that's what you need to prove in order to refute a chargeback claim. It's not good enough to prove that somebody received the item - that somebody could have stolen the card. Physical delivery to the cardholder's address is good enough proof, but is vulnerable to the scenario I mentioned earlier, and if there's no physical delivery, you've can't prove that the cardholder is the recipient.

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BradZimdack
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September 14, 2013, 04:33:13 AM
 #22

I figured everyone would do chargebacks on ANY product right away if it worked everytime. There must be some safe guards since I've never done it either.

I'm actually shocked this isn't already happening.  My company has a lot of experience dealing with credit card processing on the merchant side, and I can tell you that the chargeback situation is getting worse and worse for merchants every day.  People are figuring out that you can, in fact, go on a big shopping spree and then charge it all back.  If you consider the incentive structure involved, you can see that it is likely to only get worse:

* Any customer can initiate a chargeback on any purchase.  Whether he received the merchandise, signed for it, or even bought it in person and provided a copy of his photo ID along with a signature does not matter.  His card issuing bank will accept the chargeback request and immediately deduct the funds from the merchant.

* The merchant will have an opportunity to provide the customer's card issuing bank with supporting evidence that the customer's claim is without merit.  What is accepted as evidence is arbitrary and subjective.  (I can provide you lots of specific examples that would make you really angry at the injustice of this system.)

* Statistically, card holders who dispute a charge are more likely to default on their credit card debt.  Card issuers lose money when consumers don't pay their credit card bills.

To put it more concisely, the bank who gets to decide whether or not to uphold the chargeback will tend to lose money by finding in favor of the merchant.  Banks will always choose the course of action that makes them the most money, not what would be seen as fair or ethical to honest men.

I'm absolutely amazed that everyone isn't charging back every purchase all the time.  Perhaps we'll get to that point once people realize there's nothing stopping them.  The situation reminds me of a line from George R.R. Martin's Game of Thrones: "Power resides where men believe it resides...[power is] a shadow on the wall."  If people start to realize en masse that there's nothing stopping chargebacks on absolutely everything, other than a "shadow on the wall", all hell could break loose for credit card payments.

Here's something I posted a couple years ago about some of the other problems with credit cards for merchants:

https://bitcointalk.org/index.php?topic=36729.0
btcinstant
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September 14, 2013, 04:36:14 AM
 #23

I figured everyone would do chargebacks on ANY product right away if it worked everytime. There must be some safe guards since I've never done it either.

I'm actually shocked this isn't already happening.  My company has a lot of experience dealing with credit card processing on the merchant side, and I can tell you that the chargeback situation is getting worse and worse for merchants every day.  People are figuring out that you can, in fact, go on a big shopping spree and then charge it all back.  If you consider the incentive structure involved, you can see that it is likely to only get worse:

* Any customer can initiate a chargeback on any purchase.  Whether he received the merchandise, signed for it, or even bought it in person and provided a copy of his photo ID along with a signature does not matter.  His card issuing bank will accept the chargeback request and immediately deduct the funds from the merchant.

* The merchant will have an opportunity to provide the customer's card issuing bank with supporting evidence that the customer's claim is without merit.  What is accepted as evidence is arbitrary and subjective.  (I can provide you lots of specific examples that would make you really angry at the injustice of this system.)

* Statistically, card holders who dispute a charge are more likely to default on their credit card debt.  Card issuers lose money when consumers don't pay their credit card bills.

To put it more concisely, the bank who gets to decide whether or not to uphold the chargeback will tend to lose money by finding in favor of the merchant.  Banks will always choose the course of action that makes them the most money, not what would be seen as fair or ethical to honest men.

I'm absolutely amazed that everyone isn't charging back every purchase all the time.  Perhaps we'll get to that point once people realize there's nothing stopping them.  The situation reminds me of a line from George R.R. Martin's Game of Thrones: "Power resides where men believe it resides...[power is] a shadow on the wall."  If people start to realize en masse that there's nothing stopping chargebacks on absolutely everything, other than a "shadow on the wall", all hell could break loose for credit card payments.

Here's something I posted a couple years ago about some of the other problems with credit cards for merchants:

https://bitcointalk.org/index.php?topic=36729.0

Starting to think of opening a service that allows people to post chargebacks automatically upon purchase lol....
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September 14, 2013, 04:38:12 AM
 #24

I figured everyone would do chargebacks on ANY product right away if it worked everytime. There must be some safe guards since I've never done it either.

I'm actually shocked this isn't already happening.  My company has a lot of experience dealing with credit card processing on the merchant side, and I can tell you that the chargeback situation is getting worse and worse for merchants every day.  People are figuring out that you can, in fact, go on a big shopping spree and then charge it all back.  If you consider the incentive structure involved, you can see that it is likely to only get worse:

* Any customer can initiate a chargeback on any purchase.  Whether he received the merchandise, signed for it, or even bought it in person and provided a copy of his photo ID along with a signature does not matter.  His card issuing bank will accept the chargeback request and immediately deduct the funds from the merchant.

* The merchant will have an opportunity to provide the customer's card issuing bank with supporting evidence that the customer's claim is without merit.  What is accepted as evidence is arbitrary and subjective.  (I can provide you lots of specific examples that would make you really angry at the injustice of this system.)

* Statistically, card holders who dispute a charge are more likely to default on their credit card debt.  Card issuers lose money when consumers don't pay their credit card bills.

To put it more concisely, the bank who gets to decide whether or not to uphold the chargeback will tend to lose money by finding in favor of the merchant.  Banks will always choose the course of action that makes them the most money, not what would be seen as fair or ethical to honest men.

I'm absolutely amazed that everyone isn't charging back every purchase all the time.  Perhaps we'll get to that point once people realize there's nothing stopping them.  The situation reminds me of a line from George R.R. Martin's Game of Thrones: "Power resides where men believe it resides...[power is] a shadow on the wall."  If people start to realize en masse that there's nothing stopping chargebacks on absolutely everything, other than a "shadow on the wall", all hell could break loose for credit card payments.

Here's something I posted a couple years ago about some of the other problems with credit cards for merchants:

https://bitcointalk.org/index.php?topic=36729.0

Starting to think of opening a service that allows people to post chargebacks automatically upon purchase lol....

You would probably be rich overnight.  Grin

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Insanity: doing the same thing over and over again and expecting different results.

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btcinstant
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September 14, 2013, 04:39:38 AM
 #25

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You would probably be rich overnight.  Grin

haha probably I'm sure people would sign up. You only pay a small fee if you get successful chargeback verdict Tongue
Stephen Gornick
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September 14, 2013, 05:28:54 AM
 #26

the chargeback situation is getting worse and worse for merchants every day.  People are figuring out that you can, in fact, go on a big shopping spree and then charge it all back.  If you consider the incentive structure involved, you can see that it is likely to only get worse

Yup.  Right now the cost of chargeback fraud is being assessed to the unfortunate merchant targeted by the scammer (as the merchant pays a fee that is over and above the return of the funds to the customer).  But the costs of this fraud (PhD's employed by Visa and Mastercard writing scam-detection algorithms are expensive) are also subsidized by all the merchants together too -- currently about 3% for most retail.

But as Bitcoin and other cash payment methods (e.g., Dwolla) take share, the fraudsters will continue using payment cards with the chargeback option -- thus making it so the payment networks need to bump up their rates as a response.   And that forces the remaining merchants to further press their customers to pay with Bitcoin or other cash methods, and so on ... resulting in the payment networks forced out of the market for their most profitable transactions.

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